It’s perhaps inherently obvious that running a small business involves risk. Every business faces risks associated with changing economic conditions, competition, or other market forces, but oftentimes, these risks can have irreparable effects on a small-sized organization.
No matter how much preparation, education, and experience small business owners have in their respective fields, internal and external factors can quickly damage a hard-earned reputation or hurt a business’ finances. Depending on the type of business you own, there are a wide variety of risks you may encounter. However, almost all types of risk have the ability to cause severe damage to your company’s financial standing or reputation.
When managing a small business, you can anticipate certain potential risks before they become a problem by having risk mitigation strategies in place that can minimize their impact. Mitigating risk in a small business requires a significant amount of prep work, but done thoroughly, it has the potential to save your business when things go awry unexpectedly.
There’s certainly no cookie-cutter approach to risk that works for every organization. There are many areas within your business where, when given the necessary amount of attention and planning, risk can be avoided.
Here are four strategies you can implement in your business to avoid running into some of the most common types of small business risks.
1. Keep a Close Look at Cash Flow
Managing financial risks should always be top of mind for a business owner, especially if you’re a first-time business owner. One of the greatest risks for small businesses is improper financial management. In fact, Score.org reports that the number one reason why small businesses fail is attributed to cash flow. An overwhelming 82% of small businesses experience cash flow problems so significantly that they end operations.
With that said, problems with cash flow rarely come out of nowhere. They usually accumulate over time, in one form or another, while the business owner is faced with an influx of other projects and responsibilities that take priority.
That’s why finding a reliable accountant who can handle financial responsibilities such as bookkeeping, small business taxes, or payroll can be incredibly helpful. When you have a professional consistently keeping tabs on your business’s finances, you’re much less likely to fall victim to cash flow problems or other financial woes.
As a business owner, you should always be in the know as to where you stand financially. Every month, be sure to calculate how much money you have on hand and how long it will last if your income dries up. Crunching these numbers on a monthly basis will offer effective recurring insight to any financial risks you may soon encounter.
2. Monitor Your Online Reputation
Mitigating risk to a business’s reputation was historically limited to a negative news cycle, bad media mention, or public relations meltdown. Although these circumstances are certainly important considerations and may likely be something you might encounter as a business owner, they’re relatively rare.
However, the proliferation of the internet and social media platforms have made reputation risk a significant concern for small businesses, especially when it comes to customer satisfaction. One way to keep tabs on your business’ reputation online is by monitoring and responding to online reviews.
BrightLocal’s local consumer survey shows that 91% of consumers between the ages of 18–34 are big believers of online reviews, trusting them as much as personal recommendations. With this statistic in mind, keeping on watch for negative reviews on sites such as Google Reviews, Yelp, Facebook Reviews among others is vital. An influx of poor reviews can quickly cause your business to spiral downwards.
The best way to mitigate this type of risk is to own the dialogue surrounding your brand’s image and stay active and tuned in to reviews. Get on social media, check your reviews, and respond to people who comment about your business. Respond to as many reviews as you can, but don’t forget that these comments are visible to the public. Always remain professional in your responses, and be open and accepting of constructive criticism.
3. Establish a Proactive Security Policy
Small businesses are extremely susceptible to cyber attacks, as according to Keeper Security’s 2019 SMB Cyberthreat Study, 6 in 10 don’t have a digital defense plan in place. In addition, the impact of a cyber attack can be detrimental to a small business, as they often cost a sum that many small businesses wouldn’t be able to bounce back from.
In order to avoid these costly consequences, be sure to create a cybersecurity policy to be followed by all members of your organization. At a bare minimum, you should set standards around password management, usage of public and private WiFi networks, cybersecurity training, and conducting necessary software updates. However, you should also be sure to go a step further to ensure your business is running on a secure infrastructure.
One aspect to consider is network security, which in simple terms, focuses on the protection, detection, and reaction as it relates to company security. This includes protecting and securing external network access, which helps to secure devices on the network. Network security methods include access control (where the administrator can block unauthorized users and devices from accessing your network), data loss security, and connecting to a secure software-defined wide-area network.
4. Always Have a Back-up Plan
Backup plans are often the go-to strategy for risk management, but that certainly doesn’t mean they’re any less effective. A backup plan can help you when you get into a dicey, risk-related situation.
Backup plans can be especially helpful in marketing or advertising strategies, where current events, creative timelines, and budget planning can create setbacks in months of planning. Because these types of plans often start well in advance, there’s a significant amount of time where unexpected factors can put a wrench in your expected strategy.
Having a backup strategy set in place mitigates the risk of these factors and, should you no longer be able to move forward with your original marketing or advertising plan, dollars spent on these creative areas aren’t totally wasted.
Risk is inherent in any type of business, but that doesn’t mean it can’t be managed. Using risk management strategies such as the types described in this article can significantly reduce your chances of falling victim to small businesses risks and the negative impacts that can follow suit.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.